Auction and tender guide for sellers
We are starting to see more upward movement in the property market which is positive news for property sellers.
A more buoyant market means that sellers and their real estate agents will be looking at alternative ways to secure a buyer. Rather than sticking to traditional sales methods – advertised price, deadline sale or by negotiation – sellers may want to consider a closed tender or auction process.
The closed tender process is similar to a deadline sale. Your real estate agent will prepare the tender document for prospective buyers. Buyers must submit their offer by the date and time you specify. Under a closed tender, neither you nor the agent can look at any of the tender offers before the closing date.
You can place conditions in the tender document before it is provided to prospective buyers, for example making the agreement conditional on you purchasing another property. Tenders may also contain buyer conditions. The top offer isn’t always the driving factor. For example, you may get a ‘cleaner’ offer (with no or few conditions) but at a lower price. Typically, you will have a short period of time after the closing date to consider all of the tenders received and decide which you want to accept.
A tender process gives a sense of urgency with a fixed date and, in contrast with auctions, buyers and sellers have more flexibility, for example, by adding conditions. It is, however, less transparent than an auction as prospective buyers have no idea of what price other bidders are offering.
A property auction is, of course, quite different from a tender process. Once a prospective buyer is interested in bidding for the property, the real estate agent will hand over all of the information on the property, and the buyer must complete any due diligence they may have on the possible purchase before the auction date.
On auction day, prospective buyers bid until there is a last-bidder-standing and the auction price has reached or passed the reserve (the minimum offer you will accept). If you have a successful buyer at the auction, then you have an unconditional agreement for the sale of your property.
It is important to note that if you want to bid on your own property at the auction (known as a ‘vendor’s bid’) there are strict rules around this, so talk to the auctioneer before the auction.
For first home buyers, it can be challenging to buy a property at auction because they will generally have lower equity and need to provide more information to a lender and may, for example, need a building report or valuation. They may also need to pay the deposit from their KiwiSaver funds.
Similarities between methods of sale
Whatever the method you choose to sell your property, there are some standard provisions in the Agreement for Sale and Purchase that a potential buyer will expect to see.
Unless the property is tenanted, the buyer is entitled to undertake a pre-settlement inspection prior to settlement and, if the property isn’t in the same condition as when the agreement or tender was signed, or when the auction is held, then the buyer can ask you to remedy any issues.
The standard vendor warranties are undertakings that you provide to the buyer about various things. These include:
•Whether you are aware of any potential claims relating to the property, such as breaching a resource consent, not complying with your obligations as a landlord, or disputes about shared driveways or boundary fences
•Whether you have provided your neighbours with consents for them to subdivide or build on their property. This will be of particular interest to a buyer if it is going to impact on the character of the home
•Checking whether the chattels included in the sale are all in working condition. During the pre-settlement inspection, a buyer may identify a problem chattel. If, however, this isn’t picked up at the pre-settlement inspection, a buyer could seek to enforce the warranty after settlement, and
•Confirmation that any work you have completed to the property that required a building consent or a resource consent has the appropriate consent and code of compliance certificates.
You can, and should, remove some or all of these warranties if appropriate. This can, however, be a flag for buyers to ask further questions. If you know of any issues with the home or a particular chattel, it is important to disclose these early to avoid having to compensate the buyer under any of these warranties.
If your property does not sell at auction, you will still incur costs for the auction. You may also incur costs from your real estate agent or lawyer depending on the listing arrangements and amount of work involved.
Although there are positive signs the property market is recovering, it is still a tough market. If you are considering selling your property, it could be worthwhile exploring all selling options to market and sell your property.
Disclaimer: All the information published in Property Speaking is true and accurate to the best of the author’s knowledge. It should not be substituted for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are the views of the authors individually and do not necessarily reflect the view of this firm. Articles appearing in Property Speaking may be reproduced with prior approval from the editor and credit being given to the source.
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Similarities between methods of sale